RUEFUL OBSERVATIONS

RUEFUL OBSERVATIONS; HAPPY ANNIVERSARY, DENNIS LEVINE

By BEN STEIN; Ben Stein is a writer and lawyer in Los Angeles.

Published: May 10, 1987

THE puncturing of a social myth is not a lovely thing. When Dennis Levine was arrested a year ago this week, and then others and still others, and then Ivan Boesky - suddenly the whole idea that risk arbitrage could be practiced without inside information lay in doubt. And with it, the Reagan era myth that greed was good.

The idea had been that it was all going to be different this time. In the 1980's version, there would be no Jesse Livermores, no fraudulent pyramids, no Match Kings, no pools manipulating the price of stocks, no Joe Kennedys, no crooks, no stealing. None of the criminality associated with the last big bashes on Wall Street, in the 1920's or even the 1960's.

Instead, there would be Wall Street as a smoothly functioning machine, infusing American industry with capital, creating financing vehicles such as leveraged buyouts, distributing risk by creating new forms of options and futures and trading among them.

With Ronald Reagan in the White House, the idea of greed itself began to grow in stature. Where once greed was the necessary evil that made capitalism run, it was now an acceptable pursuit. The tripling of the market that began in 1982 only confirmed the hypothesis. Greed was making everyone rich.

In the glow, it was easy to forget that the attractive young people flocking to Wall Street were not on a heroic calling but were merely shuffling other people's money, often just for the sake of the shuffle, keeping 5 percent for their trouble. But in the Reagan mythos, investment bankers were lionized as if they were fighter pilots.

Then came Dennis Levine. And there was the glimmering that maybe it was not possible to make vast, estates-in-Bedford kinds of money without cheating, without breaking the law - at least maybe not in arbitrage in takeover situations. Maybe all of that money was not being made by clean, micro-processor operations. Maybe some of that big money was being made the old-fashioned way: by stealing.

Of course, there were and are some who were making a good living by brains and not by fraud, even in risk arbitrage. But the arrest of Dennis Levine shattered a myth that dwarfed the small field of risk arbitrage. Dennis Levine and his colleagues smashed the myth of the New Wall Street, the new Mr. Clean Finance Machine that only needed an occasional wink from the S.E.C. to keep itself in Apple Pie Order, Sir. They smashed the myth of greed as something that could be kept clean.

There are many sub-myths to be broken. One is that when management takes a company away from the stockholders in a leveraged buyout and walks away with a billion-dollar profit, management is able to do so because it is more efficient and takes bigger risks. The truth is that management makes money because it underpays the stockholders for their company and has a huge profit built in from day one.

Another myth is that ''restructurings'' add lasting wealth to the long term-stockholder. In fact, management just borrows from stockholders to pay stockholders, moving Joe Shareholder's money from his hip pocket to his breast pocket - with 5 percent staying on The Street for commission.

The whole notion that Wall Street is recapitalizing American industry will also have to go once the thread of Dennis Levine is pulled to its legal and theoretical conclusion. In fact, it is only finding new ways to make money for itself while the whole manufacturing capacity of America is deported to the Far East.

The arrest of Dennis Levine was a tragedy for him and for the people who trusted him, but not for America. It was, in fact, a benefit. Properly understood, it opens our eyes to a basic truth: There is no New Wall Street, any more than there is a New Wall Street Man. There is only money and temptation and opportunity, as always.